BIOS

A bottle of Botox at a doctor's office in Beverly Hills, Calif. on March 20, 2002. (AP / Damian Dovarganes, file)

Ross Marowits, The Canadian Press
Published Wednesday, May 28, 2014 7:20AM EDT
Last Updated Wednesday, May 28, 2014 11:19AM EDT

MONTREAL -- Quebec pharmaceutical company Valeant Pharmaceuticals increased the cash portion of its hostile offer to buy Botox-maker Allergan on Wednesday after a cool initial response from investors.

Valeant upped the cash component of its stock-and-cash offer by US$10 to US$58.30, while the stock portion remained unchanged at 0.83 of a Valeant share giving the bid a total value of about US$162.23 per share or almost US$50 billion total.

"The real message we continually got back is Allergan shareholders want this deal to occur but they wanted a higher price," Valeant CEO Michael Pearson told an investor presentation in New York.

Valeant's (TSX:VRX) shares fell US$4.73 to US$125.22 in early trading Wednesday morning in New York, and by C$3.87 to C$137.17 in Toronto.

Allergan's shares fell US$6.14 to US$158.88 on the New York Stock Exchange.

Valeant also said it will also commit up to US$400 million to invest in Allergan's eye drug Darpin and keep the current Allergan employees responsible for its development.

Darpin is a treatment for macular degeneration, a leading cause of blindness in the elderly.

Allergan (NYSE:AGN) said it will review the revised offer and "pursue the course of action that the board believes is in the best interests of the company and all of its stockholders."

Some analysts have said Valeant will have to substantially boost its offer to as much as US$200 per share including a larger cash portion because Allergan is "well-positioned" to grow as an independent company.

Several said Wednesday that Valeant's increased bid continued to undervalue Allergan.

"Our first impression is that the Valeant offer is rather disappointing. It does not really alter the fundamental value of the offer," wrote Ronny Gal of Bernstein Research.

He said Valeant is counting on Allergan shareholders to recognize that its share price will return to its pre-offer range of US$120-$130. Gal said that's unlikely, saying it could fall to US$104 and before likely rebounding.

"We hoped for something more imaginative, like substantially altering the share of cash and stock Valeant will use or a more substantial increase in the value offer," he added.

Vamil Divan of Credit Suisse said the offer is better, but may not be compelling enough given Allergan's strong outlook as an independent company.

"Given that the majority of the offer would still be in Valeant stock, how one values Valeant stock goes a long way to determining the true value of the deal," he wrote, noting the total value of about US$166 is still below the US$180 he believes shareholders are seeking.

"We still believe that Allergan has several ways that they can boost stand alone value of the firm, if not possibly fending off Valeant completely."

The analyst said Allergan's strong business and balance sheet leave it many options and expects the company to be more proactive to fend of Valeant's bid.

Allergan has raised repeated questions about Valeant's business model and stock value. The California-based company has said Valeant's growth is overstated and questioned its ability to cut US$2.7 billion of expenses if it is successful in acquiring the company.

Valeant has said Allergan has a "fundamental misunderstanding" of its business model and performance.

Pearson maintained the two companies are a good fit.

"We believe the combined companies can better serve the patient and medical communities with a more complete offering of products and continued innovation in ophthalmology, dermatology, aesthetics, neurology and emerging markets," he said in a letter to Allergan chairman and CEO David Pyott.

Earlier Wednesday, Valeant said it has agreed to sell the rights to five dermatological products to Nestle S.A. for US$1.4 billion.

"By selling it ahead of time we have eliminated one more one roadblock in terms of our integration with Allergan and we were able to get a price that was more than five-time sales, so we think it also created real shareholder value," Pearson told the New York audience

Valeant said Nestle expects to complete its acquisition of Galderma S.A. in July. The transaction is subject to customary closing conditions and Valeant said it's not contingent on a successful transaction with Allergan.

The five anti-aging skin treatments being sold by Valeant to Nestle are Restylane, Perlane, Emervel, Sculptra and Dysport.